Like so many other things in popular American culture, this quaint notion of a "middle class" in the U.S. is at this point nothing more than a myth; a rapidly fading fantasy from a bygone era. As we have noted for quite some time, the decimation of the middle class began long ago. It really got started in the early 1970?s after Nixon defaulted on the gold standard and financialization began to take over the American economy. Median real wages haven’t increased since that time and the rest is history.
"...the numbers that they crank out to make everybody feel good are almost as phony as the numbers that the Argentine government cranks out... I would say that inflation is realistically in the 8-10% range here in the US—and it’s going much higher. The growth is all a fantasy. It’s all a result of the assumption that there is no inflation, when there really is because what we have is inflation masquerading as economic growth. But the bottom line is the economy is really contracting, that’s why the labor force is shrinking, that’s why we’re using less energy, that’s why the people’s standard of living is going down, and real incomes are falling and job opportunities are disappearing. It’s because we’re in a recession and no one wants to admit it."
If Venezuela is the case study of a country in the late stages of transition into a socialist utopia, then France is the clear runner up. The most recent case in point, aside from the already sliding French economy, whose recent contraction can be best seen be deteriorating PMI data which hints at the dreaded "triple dip" recession, nowhere is the economic collapse in France more evident than in its housing market which as even Bloomberg admits, citing industry participants, is now "in total meltdown." Pierre-Andre de Chalendar, chief executive officer of Saint-Gobain, summarized the current dire situation best: "Current figures are worrying and will be disastrous if nothing is done; clients of the building sector are sounding the alarm bell.”
This week's US data onslaught begins today, with the ADP private payroll report first on deck (Exp. 230K, down from 281K), followed by the number of the day, Q2 GDP, which after Q1's abysmal -2.9%, is expected to increase 3%. Anything less and in the first half the US economy will have contracted, something the purists could claim is equivalent to a recession. The whisper numbers are to the downside since consumption and trade never caught up and the only variable is inventory as well as Obamacare, whose impact was $40 billion "contribution" in Q1 was entirely eliminated and instead led to a deduction, something we expect will be reversed into Q2. Following the backward looking GDP (which will be ignored by the sellside penguins if it is bad and praised if good) at 2:00 pm Yellen Capital LLC comes out with a correction on her call to short social networking stocks, as well as admit once again that the "data-driven" Fed really has no idea what it is doing and how it will tighten, but that tightening is imminent and another $10 billion taper to QE will take place ahead of a full phase out in October. Joking aside, the Fed is expected not to do much if anything, which may be just the right time for Yellen to inject an aggressively hawkish note considering her inflation "noise" refuses to go away.
The global economy is structured to systematically funnel wealth to the very top of the pyramid, and this centralization of global wealth is accelerating with each passing year. According to the United Nations, 85 super wealthy people have more money than the poorest 3.5 billion people on the planet combined. Seven out of every ten people on the planet live in countries where the gap between the wealthy and the poor has increased in the last 30 years... And when our fundamentally flawed financial system finally does collapse, it will be the poor that will suffer the worst.
Find the silver lining in this utter disaster... and remember, it's not moar of the same QQE as the BoJ is starting to hit its inflation mandate, misery indices are soaring, and approval ratings tumbling. Japanese Industrial Production in June fell 3.3% (almost triple the expected 1.2% drop) and the biggest plunge since March 2011 (the tsunami). This is the 10th miss in the last 12 months. Simply put, while the progressives would dearly love it not to be true, Abenomics is an epic fail leaving Japan readying itself for yet another lost decade (if it makes it that far without Abe going full militarist).
If yesterday's 2 Year bond auction was a snoozer, today's 5 Year was anything but. First, the pricing was solid, and while the high yeild of 1.72 was the highest since May 2011, it stopped 1.2 bps through the 1.732% When Issued. The Bid to Cover was also solid, rising from 2.74 to 2.81, the highest since March and now appears to have decisively broken the downtrend in BTCs seen through the end of 2013. The most notable features of today's auction however were the internals, where we saw the Direct takedown soar from 9.3% to 25.9%, the second highest on record and only lower than the 30.4% in December 2012. And while Indirects were again flat like in yesterday's auction at 48.2%, it was the Dealers who had to make space, and the resulting Dealer allotment of 25.9% was far lower than the 38.2% in June, and the lowest in auction history.
Before you jump on the Bull market bandwagon of "don't fight the Fed," perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
The attached Barron’s article appeared in December 2007 as an outlook for the year ahead, and Wall Street strategists were waxing bullish. Notwithstanding the advanced state of disarray in the housing and mortgage markets, soaring global oil prices and a domestic economic expansion cycle that was faltering and getting long in the tooth, Wall Street strategists were still hitting the “buy” key. In fact, the Great Recession had already started but they didn’t have a clue: "Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears."
As the following just released chart from Goldman shows that while non-GAAP EPS in the US have stabilized (and Japan is clearly the upside suprise even as its economy is once again teetering on the edge of recession), and Asia ex Japan is slowly rolling over once more, it is Europe that is the big shocker: as of July, European 2014 EPS forecasts are now the lowest they have been for the entire year, and are down 8% from where they were at the beginning of the year!
With the start of the new weeks, and with the MH-17 tragedy increasingly more distant and blurred, with no definitive evidence on either presented so far, with a stripped black box revealing nothing, and with the Air Traffic control recordings still in Ukraine secret service hands, the "He said, She said" is about to escalate to a fever pitch.
Much has been said in the popular press about Italy's surprising economic recovery (which based on recent data is starting to lose steam), as well as its much improved fiscal picture (even if the country's public debt hits record highs quarter after quarter and the bad debt within its banking system just rose by 24% from the prior year, to €169 billion the highest since 1998). Little has been said about just how Italy managed to pull this economic miracle off. The answer: robbing private suppliers to pay Paul, or rather, the public sector. According to Reuters, the Italian state owes some 75 billion euros ($102 billion)to private suppliers, as reported by the Bank of Italy. The unpaid bills have starved companies of cash and triggered layoffs, factory closures and bankruptcies.
This week, in the aftermath of the Q1 -2.9% GDP disaster, the biggest "non-recessionary" drop in 67 years which was blamed on harsh weather (because there have never been harsh winters in the past 67 years), we get the first glimpse of what Q2 GDP was in the US economy. It is expected to print just shy of 3%. However, one person disagrees: Gary Shilling believes that not only will Q2 GDP be closer to 1% than to 3%, there is a fairly good chance it could be negative, which of course would mean that the US economy has officially entered a recession.
Does it feel like you're poorer? There is a simple reason why - you are! According to a new study by the Russell Sage Foundation, the inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36% decline... Welcome to America's Lost Decade.
Economic laws are not optional. They are like the laws of physics - inexorable!